Trading Glossary
Trading terms explained in plain language.
Introduction
Trading has a vocabulary problem, and a lot of it exists to make simple ideas sound complicated. This glossary translates it. Where a term deserves a fuller explanation, it links to one.
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Ask
The price at which you can buy an instrument. Always the higher of the two quoted prices.
Bid
The price at which you can sell an instrument. Always the lower of the two quoted prices.
CFD
A contract for difference. An agreement to exchange the difference in an instrument's price between opening and closing a position, without owning the underlying asset.
Drawdown
The decline from a peak in your account balance to the subsequent low, usually expressed as a percentage. A measure of what a strategy costs you before it works.
Equity
Your account balance adjusted for the profit or loss on open positions. The number that actually matters when margin is being calculated.
Leverage
The ratio between your position size and the margin required to open it. It multiplies gains and losses in equal measure.
Liquidity
How easily an instrument can be traded without moving its price. Thin liquidity means wider spreads and worse fills.
Lot
The standard unit of position size. A standard lot is one hundred thousand units of the base currency, a mini lot ten thousand, a micro lot one thousand.
Margin
The capital required to open and maintain a leveraged position. It is not a cost, it is a deposit held against the position.
Margin Call
A warning that your equity has fallen close to the minimum required to sustain your open positions.